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December 2010

December 27, 2010

Last spring I wrote this blog entry about global exhaustion of rights in the patent sphere versus in the copyright sphere, with an eye toward then-the upcoming U.S. Supreme Court case in Costco v. Omega. Briefly, Costco purchased Omega watches abroad in places where the watches were sold cheaply, then imported them into the USA, where Costco sold the watches for far less than Omega would have liked. Because the watches bore a tiny artistic design that was registered with the Copyright Office, Omega sued for copyright infringement and sought an injunction. Costco argued that under the Copyright Act’s first sale provisions, Omega had exhausted its rights, but in 2009 the Ninth Circuit ruled that since the first sale occurred abroad, the those rights weren’t exhausted. The Supreme Court granted cert last spring and heard the case this fall.

Despite being a copyright case, Costco v Omega attracted the attention of the patent community. That’s because in a series of earlier cases dating back to 2001 involving patentee Fujifilm and the now-bankrupt Jazz Photo and its owner, Jack Benun, the Federal Circuit ruled that the analogous doctrine of exhaustion of patent rights only applies when the first sale occurs in the USA. The CAFC’s jurisprudence allows patentees to practice “price discrimination”, viz. to charge different prices for the same goods in different markets. Thus, for example, were a pharmacy in Detroit to send a truck south into Windsor, Ontario, and fill the truck with thousands of U.S.-patent-protected-but-Canadian-price-controlled pills, in the hope of then selling the drugs in Detroit at a higher price, the patentee’s rights would not be exhausted by the sale in Canada, and the importation of the pills into the USA would constitute patent infringement. A reversal of the Ninth Circuit’s decision could have meant a reversal of the CAFC’s case law as well.

Two weeks ago, SCOTUS handed down its decision in Costco, a 4-4 split, Justice Elena Kagan having recused herself because she had been involved in the case on behalf of the United States while still serving as Solicitor General. The split decision means that the Ninth Circuit’s ruling stands, and a first sale of a copyrighted work outside the US doesn’t exhaust the copyright holder’s rights in the USA. It also implicitly leaves the CAFC’s patent exhaustion case law intact.

There’s some speculation that this may not be the end of the matter: inasmuch as four of the justices thought the Ninth Circuit got it wrong, and Justice Kagan herself may be in favor of universal exhaustion of copyright, it’s possible that the Supreme Court may grant cert in a similar case in the future. It only takes four justices to grant cert.

If that comes to pass – and this is really reading tea leaves – I’m guessing the court would leave the doctrine in patent cases untouched. That’s because, on the same day the eyes of the patent community were focused on the Costco decision, few seemed to notice that the Supreme Court denied cert in a case in which the CAFC’s own patent exhaustion jurisprudence was in question. In May of this year, in Fujifilm v Benun – the sixth installment in this ongoing saga before the CAFC – the CAFC ruled, inter alia, that the Supreme Court’s decision in Quanta Computer v LG Electronics did not overturn the CAFC’s requirement (enunciated in an earlier Fujifilm case) that a first sale of a patented item must occur in the USA in order for the patentee’s rights to be exhausted. In other words, the Supreme Court was just presented with a case in which the CAFC’s exhaustion rule was front-and-center, and in which Justice Kagan didn’t have to recuse herself, and still it didn’t find the matter sufficiently interesting to warrant its review. .

For comparison’s sake, in Israel a patentee’s local sales of a patent-protected article exhausts his rights, but the question of whether foreign sales exhaust those rights remains open. In two Israel Supreme Court cases from the middle of 2001 (Bristol-Myers Squibb et al. v Minister of Health et al., High Court of Justice case no. 5379/00 and Rav Bariah v Beit Mishar et al., Civil Appeal 1636/98), the question was discussed, but in both instances the cases were decided on other grounds, with the court explicitly leaving the international exhaustion question open.

In short, both in the USA and in the Israel, it seems the courts still haven't exhausted exhaustion.

In the previous post I discussed the issue of amending granted US patents to include new dependent claims. In this post I look at the same question with regard to Israel.

The question of post-examination amendments was addressed recently during a pre-grant opposition to Schwarz Pharma’s IL 149567. The corresponding US 6858650 is the sole patent listed in the Orange Book for Pfizer’s Toviaz® (fesoterodine fumarate), used to treat overactive bladder. Claim 1 as allowed was a typical chemical compound claim, claiming a compound of the following structure:

in which R and X- were each defined as being selected from a closed group of choices. The other independent claims were directed to methods for making such compounds or certain intermediates thereto. The active ingredient in Toviaz® is such a compound in which R is isopropyl and the counterion X- is fumarate, and having (R)-stereochemistry at the chiral carbon atom.

After allowance of the claims (the same 17 claims granted in the corresponding EP 1481964 B1, which was granted without opposition) and their ostensible publication for pre-grant opposition, Teva opposed the granting of the patent. While the opposition was pending, Schwarz Pharma asked to amend the claims by (a) excluding chloride as X- throughout the claims; (b) restricting R to isopropyl throughout the claims, (c) canceling dependent claim 17 and (d) amending claim 6 – which by virtue of the amendments to claim 1 was now obsolete – with “Compounds in accordance with claims 1 to 5 in crystalline form.”

The amendment of claims in pending Israel patent applications is governed by §22 of the statute; applicants may freely amend their claims, as long as the amended claims are supported by the specification as filed. The amendment of claims in granted patents is governed by §§65-66 of the statute. By virtue of §29, the amendment of published but not yet granted applications is also governed by §§65-66. These two sections read as follows:

65. A patentee may request amendment [alternate translations: “correction” or “fixing”] of the specification of the patent for the sake of clarification or removal of an error that occurred therein or for the sake of reducing [alternate translations: “restricting”, “contracting”, “limiting”, “condensing”] his claims.

66. The Commissioner shall allow the amendment, if he is convinced that there is nothing therein to broaden the scope of the claims in the specification or to add to the specification things which were not in their essence mentioned therein a priori; notice of allowance of the amendment shall be published in Reshumot.

Teva opposed the amendment of claim 6 on the grounds that this amendment – in effect the addition of a new dependent claim – was not permissible under §65, as it did not fall into any of the three categories enumerated therein: clarification of the specification, correction of an error in the specification (which includes the claims), or for reducing the claims. Schwarz Pharma argued that since amended claim 6 did not broaden the scope of the claims, thus according with §66, the amendment should be allowed.

The hearing officer who decided the case first ruled that §65 establishes the criteria for potentially permissible amendments; only if a proposed amendment falls within the types of amendments under §65 does the Commissioner then turn to §66 to determine if the amendment is permissible. Turning to the criteria of §65, she then ruled that the inclusion of a new dependent claim did not constitute a clarification, and (similar to the statement made by the USPTO during the prosecution of Tanaka’s reissue application) that the failure to include dependent claims during ex parte prosecution was not the sort of error contemplated by §65. This left “reducing [the] claims” as the only possible basis for allowing new dependent claim 6, but, using reasoning very similar to that of the BPAI in Tanaka, the hearing officer concluded that new dependent claim 6 did not constitute a restriction of the claims:

“Restriction of claims” means claiming a smaller portion of the scope of monopoly that was claimed in the context of a claim or set of claims as originally presented. There is nothing in new claim 6 to limit the scope of the monopoly claimed in claim 1 or in the set of claims 1-5; for when the [substantive] opposition to the grant of the patent is addressed, these claims will be addressed in full (as would also happen in a suit for infringement, if the patent is granted), and the scope of the monopoly claimed therein will be unaffected by the addition of new claim 6. This implies that there is nothing in new claim 6 to restrict what is claimed in the patent application in accordance with section 65 of the patent statute.

And later:

Section 65 cannot be understood as instructing other than that the applicant must act to restrict his claims, i.e. to reduce the monopoly originally claimed, and not to add alternative lines of defense in the guise of new dependent claims.

Thus, per the hearing officer’s decision, once an application has been published for opposition, there is no way for the applicant/patentee to introduce new dependent claims.

Although the hearing officer’s take on §65 is not implausible, it is not the only interpretation of the statute possible; that’s why, in translating §65 above, I included several alternate translations of the Hebrew term “tzimtzum”. The hearing officer understood the phrase to mean “restricting the scope of the patentee’s claims”, but in the context of §65, “tzimtzum” could merely mean reducing the number of the claims. Support for this view comes from the fact that the word “scope” (“hekef” in Hebrew) doesn’t appear in §65, but it does appear in §66: the Commissioner must ascertain that the amendment won’t broaden the scope of the claims. To read “scope” into §65 is therefore to render part of §66 redundant; but interpreting statutes to create redundancy therein is generally frowned upon. If, however, “tzimtzum” in §65 is understood to mean reducing the number of claims, then there is no redundancy between §65 and §66 – and applicants whose applications have been opposed, or patentees, would be free to add a number of new dependent claims commensurate with the number of claims they are willing to cancel.

The absolute bar on the introduction of dependent claims is at odds with the situation in the USA, which, as explained in the previous post, enables the addition of new dependent claims (1) in the context of reissue proceedings, if at the same time (a) the scope of one of the independent claims is also being restricted or broadened or (b) the specification is being corrected, and (2) in the context of reexamination proceedings. In the present case, had claim 1 been granted in the USA and had Schwarz Pharma sought reissue to limit claim 1 by excluding Cl- as X- and limiting R to isopropyl, as it did in Israel, then new claim 6 could have been introduced.

Schwarz Pharma has until roughly the end of December to appeal the decision to one of the District Courts. In addition to appealing on grounds of statutory construction, Schwarz Pharma could appeal on the grounds that the application was not properly published per §26 of the statute (as discussed here and here), and therefore not only is the opposition to the grant of the patent premature (since the statute says oppositions cannot commence until after §26 publication), but in fact the applicable section governing the requested amendments is §22 rather than §§65-66. Inasmuch as Schwarz Pharma is represented by one of the larger Israel firms, Schwarz’s attorneys probably don’t want to rock the boat by raising this argument, as it could result in a declaration that thousands of ostensibly granted patents – including many of those held by other clients of those attorneys – weren’t really granted and still need to go through the §26 publication process, followed by the opposition period. But the argument has no worse a chance than the statutory construction arguments Schwarz Pharma might set forth

If the hearing officer’s decision is not overturned on appeal, the result will be that in most cases, applicants will only be able to obtain those dependent claims introduced during ex parte prosecution. To avoid this difficulty, in important cases applicants who can afford to do so should maintain the pendency of a divisional application. In the corresponding case in Europe, for example, the divisional EP 1690536 B1 claims crystalline fesoterodine fumarate as well as its use. However, the ILPTO in recent years has been making it difficult for applicants to delay examination of their applications; and as discussed in an earlier post, the Commissioner has (erroneously) taken the view that applicants cannot file divisionals of divisonals, which would be another obvious way to maintain pendency in the absence of an explicit continuation regime as in the USA.

Moreover, it’s not clear how the ILPTO would respond were an applicant to file a claim in a divisional that properly should have been included as a dependent claim in the parent case: the ILPTO might raise the Israeli equivalent of what in the US would be called a statutory double-patenting rejection. Although it’s my view that such an assertion would be incorrect, to the best of my knowledge the matter hasn’t yet been adjudicated.

NOTE: This is the first part of a two-part post. This part focuses on US practice; the second part will focus on Israel practice.

During ex parte patent practice in both the USA and Israel, applicants are free to amend their claims, so long as the amendments are supported by the specification. But what are a patentee’s options for amending the claims after grant?

In the USA, a patentee may seek a certificate of correction to rectify clerical or typographical errors (35 U.S.C. §254 and §255), but more substantive matters – like substantive patentability – may be dealt with through two types of proceedings, reexamination and reissue.

Reexamination (35 U.S.C. §§301-307 and §§311-318) can be thought of as a means for correcting a particular type of error by the USPTO: the failure to find and consider certain prior art publications during the examination of a now-issued patent. This is reflected in the fact that re-examination proceedings are predicated on the patentee or a third party presenting to the USPTO one or more printed prior art publications that raise a substantial new question of patentability regarding at least one of the claims of the patent. Unlike prosecution of a regular application, reexamination can only result in the allowance or rejection of each claim; continuations and divisionals cannot be filed in a reexam.

During reexamination, patentees may amend their claims. Although patentees may not broaden the scope of the claims during reexamination, they may add new dependent or even independent claims. Thus, for example, reexamination of US 6047319 resulted in all 17 originally-granted claims being upheld as allowable, and the addition of nine new claims, including a new independent claim 21 as well as claims 18-20 which depend from claim 1.

Reissue, in contrast, can be thought of as a means to correct patentee error in an issued patent. Unlike reexamination, only the patentee can request reissue. As set forth in the first paragraph 35 U.S.C. §251, reissue may be sought for two reasons: a defective specification or drawing, or claims that are overly broad or overly narrow.

Whenever any patent is, through error without any deceptive intention, deemed wholly or partly inopera­tive or invalid, by reason of a defective specification or drawing, or by reason of the patentee claiming more or less than he had a right to claim in the patent…

As with reexamination, during reissue proceedings the applicant may amend its claims and add new ones. However, in contrast to reexamination, once reissue proceedings have begun, the applicant may file continuations and divisionals. And if the reissue application is filed within two years of the grant of the original patent, the patentee may seek to broaden his claims. Broadening, in this context, means amending or filing a claim that is in some way broader than the originally granted claims, even if the amended or new claim is in other ways narrower than the granted claims. In re Self, 671 F.2d 1344 (CCPA 1982).

An interesting question that is now before the CAFC is whether or not a patentee may seek reissuance of a patent when the only change sought is to add a new dependent claim. According to a memo circulated to the examining corps by then-Deputy Commission John Love in late 2007, as long as one of the two threshold criteria are met – defective specification or drawings, or overly broad/narrow claims – USPTO policy is that the patentee is entitled to seek reissue under the statute. But if the only the failure of the patent alleged by the patentee is the failure to include a dependent claim, that does not constitute “the patentee claiming more or less than he had a right to claim in the patent”, as per 35 U.S.C. §251, and thus the patentee is not entitled to seek reissue.

The result of the PTO’s position is that in cases where there is an error in the specification to which the patentee can point, he can use this to gain entry to the reissue process; once there, he may add dependent claims, without narrowing his already-granted independent claims. Exhibit A: the reissue of US 5945207, which resulted in Re 40005. In that case, the only amendment to the claims that the patentee sought to introduce was the addition of new dependent claims. Under the USPTO’s view, that alone would have been insufficient as a basis for reissue proceedings. But the patentee also sought to correct the units for saturation magnetization recited in the specification, from “kA/m” to “kAm2/kg” (compare col. 3, line 17 of the original patent with col. 3, line 21 of the reissued patent). That opened the door for the reissue process, enabling the patentee to add new dependent claims 8-14.

However, as set forth in a 2009 BPAI decision, Ex Parte Tanaka, in the case in which the patentee seeks only to introduce a new dependent claim, without amending the specification or otherwise amending any of the granted claims, the PTO will not allow the reissue to proceed. In that decision, the BPAI explained why it believes that CCPA and CAFC case law interpreting §251, including Hewlett-Packard Co. v Bausch & Lomb, Inc., 882 F.2d 1556 (Fed. Cir. 1989) and In re Handel, 312 F.2d 943 (CCPA 1963) does not allow reissue applications solely for the purpose of introducing new dependent claims. Inter alia, the Board was of the view that if failure to include dependent claims was an error correctable by reissue, “then virtually every patent could be reissued out of hand”. Tanaka is now on appeal before the CAFC; oral arguments are scheduled for January 10, 2011.

(Interestingly, Tanaka had originally attempted to file a broadening reissue in which only claim 1 would be broadened, but this was rejected as an attempt to recapture subject matter surrendered during prosecution – the portions of claim 1 Tanaka sought to delete had been relied upon during prosecution of the patent to distinguish over the prior art. Since recapture cannot be the basis for a reissue, the application was rejected on this as well as prior art grounds. Eventually Tanaka decided to leave the original seven claims alone and to file two new independent claims and several claims dependent therefrom. These new claims were rejected in 2005 on prior art grounds, not on the grounds that the application failed to qualify as a reissue application under §251. Later Tanaka amended some of the new claims, but after the Examiner maintained his prior art rejections, in March 2007 Tanaka cancelled all the new claims, save for new claim 16, which he amended to depend from originally granted claim 1. The Examiner then rejected the application on the grounds that the amendment necessitated the filing of a new reissue oath, although he indicated that the new claim 16 was in principle allowable. Tanaka then filed a new reissue oath, in which he listed the error in the patent being “the features recited in dependent claim 16 were not included in the original patent”. It was at this stage, in October 2007, that the Examiner rejected the application as not being subject to reissue, because “the error specified in the oath filed 9/24/2007 is not an error correctible by reissue. The applicant has not specified and error that broadens or narrows the scope of the claims of issued patent number 6093991. The original claim 1 remains in the current reissue application, therefore the broadest scope of the patent remains the same.” In an advisory action mailed in December 2007, the Examiner further explained that “Retaining the broad patent claim without amendment is an indication that the broad patent claims [sic] is not inoperative to cover the disclosed invention.”)

As a practical matter, it’s clear that there are several other ways Tanaka could have approached the situation and still managed to get his dependent claim allowed. He could have kept a continuation application pending; claim 16 would apparently have been allowed, pursuant to the filing of a terminal disclaimer. A riskier but viable approach would have been to find some prior art that raises a substantial new question of patentability and to request reexamination on that basis. That would have opened the door to adding new claims, assuming that the claims were allowable over the prior art that served as the basis for the reexamination request. And as mentioned above, he could have pointed to an error in the specification as the basis for reissue; that too would have opened the door for adding new claims.

Another possibility might have been to amend one of the allowed claims in a way that formally narrowed the claim, but without detriment to the commercial value of that claim. Such an approach was used in the reissue of US 6910617. There, the patentee originally sought to only add dependent claims, and was rejected for the same reason Tanaka’s reissue application was rejected. In response, the applicant amended the word “axial” in claim 1 to read “coaxial” (although he also found an error in the specification which also served as the basis for reissue). This narrowing amendment brought the application within the ambit of the §251, enabling the patentee to add independent claims (although he could have added dependent claims as well) and leading to the issuance of Re 41101.

Editorializing for a moment, it seems strange that if a patent has no apparent flaws except for the failure to include some additional dependent claims, the patentee has no recourse to get those additional dependent claims introduced. If, however, there are some flaws, e.g. the patentee made a mistake in the specification or drawings, or found some prior art that calls the validity of the claims into question, then that patentee is rewarded with an opportunity to file new dependent claims.